The words Mortgage Modification and/or Mediation and Bankruptcy were never used in the same sentence because we all know that a debtor in Chapter 13 bankruptcy cannot use the Bankruptcy Code to modify a primary mortgage on their residence. However, in the wake of this economic challenge, the winds of change are blowing, and we are starting to see cracks in the old walls. Now, Bankruptcy Judges are creating the changes they wish to see.
In Orlando, Florida, the Bankruptcy Judges, Chapter 13 Trustee, Debtors Attorneys and Creditors Attorneys started a mediation program to assist debtors who wanted to save their homes. Under the current Bankruptcy Code and existing case law, this may be impossible under certain circumstances, however, there is nothing in the Bankruptcy Code or existing case law which prohibits the parties from a mutually agreed modification of the mortgage. So far, the program has seen a great deal of success.
Mediation is an alternative dispute resolution process where the parties come together in a totally open atmosphere. There is confidentiality without fear of reprisal. The parties meet across a conference table and each side gets to present his or her version of the issues and possible solutions under the guise of an experienced mediator. The mediator is a neutral third party who is there to help the parties come to a mutual agreement. The mediator is not there to assist the parties in the presentation of their arguments.
The best part of mediation for the debtor is that a mediation may present the one and only time that a debtor can express himself and the problems that they have been having open and honestly without fear that their words will hurt them to a person who is a decision maker from the mortgage company. I know that many individuals who are behind on their mortgages express their anxiety and stress about having to deal with the mortgage company and never speaking to the same person, or that the person who they are speaking with was not a decision maker. Mediation provides the debtor with a forum for clarifying the issues and really laying out a plan for a modification concurrent with their existing Chapter 13 Plan.
The program is now spreading to the other three divisions of the Bankruptcy Court in the Middle District of Florida (Tampa, Jacksonville, and Fort Myers). Of course, each Bankruptcy division will have its own uniqueness about it, but the overall goal of each program is allowing a debtor to mediate his or her mortgage claim while still maintaining the protections of the Bankruptcy Court.
By using the program designed by the Bankruptcy Court, the benefits will receive outweigh any detriments in my opinion. A debtor who chooses this path will have the opportunity to demonstrate to the mortgage company why keeping their home in a Chapter 13 bankruptcy is not only reasonable but financially a good decision. Likewise a creditor shall have the opportunity to see the debt0r’s financial position and why the creditor will be paid first before any other unsecured creditors.
I believe it is a win – win for the debtors and creditors.
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Last modified: December 5, 2011